Agency pricing

[jbcohen]

I hear people on these forums talk about agency pricing. What are they talking about? Prices set by the publisher perhaps?

[Sydney's Mom]

You can google agency pricing and Apple. Basically, in connection with the launch of the ipad, Apple struck a deal with major publishers to stop Amazon from selling books at a price lower than Apple. This was a reaction to Amazon's former $9.99 price strategy. Amazon had to sign on, or the big publishers wouldn't let them sell their books. There is one major publisher that did not sign on, but I don't remember which one.

[queentess]

I believe it's Random House who is not involved with Agency Pricing

[user_none]

Yes. Agency pricing is where the publisher not the store sets the price. The store selling has little to no say in the price.

This is the same as General Mills saying to Kroger that Cheerios can only be sold for $12 a box no exceptions. In this model Kroger cannot change the price they sell cheerios for sales or add any additional markup to the product. I use cereal as an example to show how asinine ageny pricing is. The store buys the product and shouldnt be dictated what they can sell it for. Free market economics should be used to establish and determine the best pricing for a particular store.

[Angst]

The agency five:

Hachette (Grand Central, Little Brown, Faith Words, Windblown, Orbit, Center Street, Yen Press)

HarperCollins (Amistad, Avon, Caedmon, Ecco, Eos, Harper, ItBooks, Rayo, William Morrow)

Macmillan (Farrar, Straus and Giroux, FSG, Hill & Wang, Faber & Faber, First Second, Henry Holt & Co., Metropolitan Books, Times Books, Nature Publishing Group, Palgrave Macmillan, Picador, Quick and Dirty Tips, Scientific American, St. Martin’s Press, Minotaur Books, Thomas Dunne Books, Tor/Forge, Orb Books)

Penguin (Penguin, Ace, Alpha, Amy Einhorn Books/Putnam, Avery, Berkley, Dial, Dutton, Firebird, Frederick Warne, Gotham, Putnam, Grosset & Dunlap, HP, Hudson Street, Jove, NAL, Pamela Dorman Books, Perigree, Philomel, Plume, Portfolio, Prentice Hall, Price Stern Sloan, Puffin, Razorbill, Riverhead, Sentinel, Speak, Tarcher, Viking)

Simon & Schuster (Atria, Folger, Free Press, Gallery, Howard, Pocket, Scribner, Simon & Schuester, Threshold, Touchstone/Fireside)

[Andrew H.]

Originally Posted by user_none

Yes. Agency pricing is where the publisher not the store sets the price. The store selling has little to no say in the price.

This is the same as General Mills saying to Kroger that Cheerios can only be sold for $12 a box no exceptions. In this model Kroger cannot change the price they sell cheerios for sales or add any additional markup to the product. I use cereal as an example to show how asinine ageny pricing is. The store buys the product and shouldnt be dictated what they can sell it for. Free market economics should be used to establish and determine the best pricing for a particular store.

The problem is not agency pricing (which is neither asinine or anti-free market). The problem is the agency *price.*.

Itunes uses agency pricing and most people don't complain about the price. Ebay uses agency pricing, and likewise.

If the publishers had moved to agency pricing and sold new bestsellers for $5.99, everyone would be talking about how Amazon was ripping us off with its $9.99 prices, how it was right for the publisher to set the price, how we don't need middlemen, etc. The only problem with agency pricing is that, in this case, the publishers set the price at a price people believe to be too high.

But that has everything to do with the price, and little to do with the agency.

[wallcraft]

The "agency" part is that the bookseller is not a retailer but rather an "agent" for the publisher. This is a transparent end run around price-fixing regulations.

There are likely to be unintended consequences of this approach. The most significant one so far, in the US, is that everyone has to pay sales tax on Agency ebooks because it is the publisher making the sale and they almost all have a "presence" in all states. Another that is likely to happen eventually is a class action lawsuit if an "agent" closes down. The publisher is on the hook for those "lost" ebooks, and are simply not setup to handle this is any customer friendly way.

Note that most ebook store's terms of service have not been changed to allow for Agency sales (e.g. Amazon). It isn't clear to me that the current versions even apply to Agency sales. I get a receipt from Amazon for Agency Kindle sales and they look like standard Kindle sales, but they are publisher sales. For example, if Amazon's contract was canceled by an Agency publisher they would have to stop downloads of already sold ebooks (if a non-Agency contract is canceled it does not necessarily effect existing sales).

[user_none]

Originally Posted by Andrew H.

The problem is not agency pricing (which is neither asinine or anti-free market). The problem is the agency *price.*.

Yes because a third party telling me what price I can sell products for in my store is such an embodiment of a free market economic system.

[Andrew H.]

Originally Posted by user_none

Yes because a third party telling me what price I can sell products for in my store is such an embodiment of a free market economic system.

I'm not sure what you think a free market economic system entails, but most people think that it involves a seller (i.e., the publisher) offering goods (i.e., e-books) to a consumer (i.e., me or you) for a price.

Selling to a retailer, or a distributor, at wholesale, who then marks it up and sells it to consumers is also something that happens in the free market, but it is not inherent in the system.

Flea markets, auctions, consignment shops, etc. all use an agency model. They are all part of the free market.

[caleb72]

Originally Posted by Andrew H.

I'm not sure what you think a free market economic system entails, but most people think that it involves a seller (i.e., the publisher) offering goods (i.e., e-books) to a consumer (i.e., me or you) for a price.

Selling to a retailer, or a distributor, at wholesale, who then marks it up and sells it to consumers is also something that happens in the free market, but it is not inherent in the system.

So if we accept that the wholesale/retail distinction is not inherent in a free market system, the we would say your second paragraph is just two instances of the first paragraph.

1. The publisher sells to the retailer
2. The retailer sells to the consumer

So in this case, we have the seller from step 1 restricting how the seller in step 2 can price its goods.

Is this contrary to the spirit of a free market economy? I don't know really. The fact that seller number 1 puts a restriction on what seller 2 can do with that product seems not that different to the fact that in this case, seller 2 puts a range of restrictions on what the end consumer can do with the product.

At least seller 2 can actually sell the product. The consumer's got no chance.

Regards
Caleb

[snipenekkid]

don't confuse situations where the venue providing a common place for consumers to access goods and services with an entity called a retailer. An auction is a venue who usually hires a licences auctioneer (many, many auctioneers are independent contractors who sell their services to auction houses and not many auction houses have full-time auctioneers on staff. On retainer sure, on staff, not too often) to conduct the sale for a fee so this is NOT an agency model it is more of a modified consignment model. A flea market it a venue providing a common location, or venue, for the independent reseller to offer goods and services to others. A consignment shop is again, providing a venue as well as some degree of care-taking of the sales process (as in providing a service) to the consignor. In many cases in a consignment shop a seller/retailer rents space from the venue in order to have their own point of presence inside that venue. The venue itself, by definition, does not govern the pricing outside the any agreements with the seller.

So in this new agency model it is moving Amazon from being the actual seller over to the status of a venue which also aids in the distribution of the product for the actual seller. Amazon can also manage payment and funds disbursement to the actual seller. Basically the Agency 5 have move to a custom "Amazon Marketplace Seller" rather than a wholesaler. Problem is they control a huge portion of what has traditionally been the product Amazon bought then sold in their roll as the actual seller/retailer.

Just wanted to maybe add some clarity or make it worse in the subtle differences between the venue/agency types mentioned a couple posts above. And there is zero wrong with this model. However it is how it came to be which raises questions. I have mentioned before it is an odd set of circumstances where all five of the original group and Apple came to a very fast agreement. But if it was collusion then the five needed Apple to act as if it was Apple's idea for the whole thing. Still I'm not 100% sure that is more than borderline OK. Only time and the courts will tell. But it surely is very anticompetitive, in spirit if not in fact.

[AzB]

This is, of course, one of the reasons the music industry had to deal with rampant piracy a dozen years ago. The price for cds was fixed ridiculously high. This makes piracy more attractive to those who would otherwise probably not bother with piracy.

And DRMs are easily defeated.

All because of middle management greed. It seems some never learn from History.

Az <--- not advocating piracy, I've never pirated any books, music, or movies. Just the odd Spanish galleon.

[Andrew H.]

Originally Posted by AzB

This is, of course, one of the reasons the music industry had to deal with rampant piracy a dozen years ago. The price for cds was fixed ridiculously high. This makes piracy more attractive to those who would otherwise probably not bother with piracy.

I don't think that's quite right. CDs weren't that expensive 10 years ago...and even cheaper CDs were pirated. The real issue with music piracy was that people couldn't buy mp3s at all (at first), or conveniently (second). I.e., if you wanted, say, "Bohemian Rhapsody" in 1999, you could either buy the CD and rip it, or download it from Napster. You couldn't buy it the mp3 online *anywhere.* Later, in some cases, you could buy the whole album digitally, but you couldn't just buy the single. Itunes was successful because they gave you a simple, one-stop shop to buy singles or albums, and they made it really easy to transfer your purchases to your device.

(IMO, the reason that the iPod came to dominate the mp3 player market was not because of the device itself, but because of how well iTunes worked with the iPod...not that iTunes is a perfect piece of software, but it's important to keep in mind just how horrible other software was in 2002).

But I think it's really important to point out how availability is much more important that cost...simply because you *can't* compete with free. No one can. I think that most people seem to feel that $1/song is a reasonable price for an mp3 - but if you've found 1,700 songs in the darknet, there is *no* price that the publishers could offer that can beat that, or even come close to that. Not that prices should be jacked up, but you have to recognize the limits of pricing.

Amazon, it's clear to me, borrowed a lot from the lessons of iTunes and focused on making the process of buying books and putting them on your e-reader as simple as possible. Amazon's comprehensive catalogue plus the ease of buying books is the reason that they have 70-80% of the US market. B&N started later, and while their system of putting books on your reader isn't quite as easy as Amazon's, it still compares favorably with, say, iTunes (where I still can't wirelessly sync, redownload music I've bought, or have things automatically sync between multiple devices).

I think the fact that Amazon and B&N have 95% of the US market is really good evidence that, at least within a range, price isn't that important. Even after the agency model kicked in, US e-books sales tripled and Amazon now sells more e-books than paperbacks or hardbacks. None of which would have happened if people had been particularly price sensitive.

[vaughnmr]

Originally Posted by Andrew H.

I think the fact that Amazon and B&N have 95% of the US market is really good evidence that, at least within a range, price isn't that important. Even after the agency model kicked in, US e-books sales tripled and Amazon now sells more e-books than paperbacks or hardbacks. None of which would have happened if people had been particularly price sensitive.

You might want to verify your assumptions. Amazon recently stated that one of Patterson's ebooks dropped 48% in sales after the cartel raised the price $2.00. I would say that IS being price sensitive.

[HarryT]

Originally Posted by caleb72

So if we accept that the wholesale/retail distinction is not inherent in a free market system, the we would say your second paragraph is just two instances of the first paragraph.

1. The publisher sells to the retailer
2. The retailer sells to the consumer

So in this case, we have the seller from step 1 restricting how the seller in step 2 can price its goods.

Is this contrary to the spirit of a free market economy? I don't know really. The fact that seller number 1 puts a restriction on what seller 2 can do with that product seems not that different to the fact that in this case, seller 2 puts a range of restrictions on what the end consumer can do with the product.

At least seller 2 can actually sell the product. The consumer's got no chance.

Regards
Caleb

Of course the consumer has a choice. He can decide not to buy the product. There are lot of other books to choose from; if you consider a particular book to be too expensive, don't buy it. Or just wait a while - the price will probably fall.